I’m not going to yabber on about BitCoin, there’s been plenty of that already. It should be apparent to everyone that the value of that particular virtual currency is so volatile that it is unlikely to survive.
For those needing a ‘101’ on BitCoin, this hard-nosed assessment in Forbes is worth a read – http://www.forbes.com/sites/louiswoodhill/2013/04/11/bitcoins-are-digital-collectibles-not-real-money/
What I want to talk about is the implications of virtual property in an ever-complex, ever-expanding online world.
As enjoying an online existence gradually morphs from being solely the remit of game players to being something we all partake of, many issues will arise. A little thought suggests that every problem faced by society will also have to be overcome in the virtual world. As mainstream humanity populates this shared virtual reality, it will bring with it not just social interaction but commerce, welfare issues, distribution of land, sharing of resources and, of course, the seven deadly sins; wrath, greed, sloth, pride, lust, envy, and gluttony.
People will be people, whatever world they are in.
The virtual world brings an additional danger. Whereas if I buy a shirt in the real world, it has a real undeniable existence. It can’t be switched off or changed into something else. Everyone seeing it will see a shirt and will understand its worth. By worth, I’m not talking about the price I paid for it. I’m talking about its worth in keeping me warm and decent, plus being something to hang a tie around. Those are tangible values and are based on the reality of the shirt.
Because the shirt has a tangible value, I can judge what is a reasonable price to pay for it in the shop. Prices for real objects are a function of their tangible value and the effects of the market; a sort of crowd-sourcing component where we all combine to say what is a fair price, based on supply and demand.
When I buy an object in a virtual world, it is ephemeral. I am at the mercy of the business that owns the servers. They control the world in a god-like way and can perform ‘acts of god’, perhaps changing my ‘virtual shirt’ into a hamster, or two daisies, or nothing at all. This is why BitCoin values are so volatile, because there is no real basis for the currency, and no guarantees. Even real-world currencies like the US dollar became more volatile when they broke with the gold standard. However, the value of the dollar is not wildly volatile because it is constantly being exchanged for things of tangible worth. The gold standard was switched to the ‘everything you can buy’ standard.
Back to the virtual world. In order to be a functioning environment in which people can trade and hold assets, there must be mechanisms to guarantee worth. They will need to be analogues of the guarantees in the real world. Part of this means protections against acts of god. Another part is a court of appeal; a body that can right wrongs and resolve disagreements.
The final part is a ‘standard’ for the virtual currency. It cannot be tied to, or representative of a real world currency. That wouldn’t work because the laws that would drive the value of a virtual currency will not be tied to their analogues in the real world. Supply and demand will be different, the relative values of items will be different. For example, what’s the value of a coat in a reality where it is never cold and never rains? This would create intolerable stress between the real currency and a virtual one tied to it.
Instead, we might have a kind of firewall. We allow trade inside the virtual world, but trade between the real and virtual worlds is tightly controlled. The firewall would take the form of an exchange rate mechanism that strictly manages transactions across the boundary. Its job would be to decouple the two economies, while striving to provide correlation in terms of the tangible value of assets.
Here is an example, albeit a little left field. Allow for a little sci-fi here please. A man is lying in bed and close to death. Assume that the technology exists to allow him to transfer his ‘being’ permanently into the virtual world so that he continues to exist there when his physical body dies. He finds himself in the situation of needing somewhere to live in the virtual world, while no longer requiring his house in the real world. He can’t sell the real house and exchange the funds into virtual currency because the firewall doesn’t allow that. However, it will allow for an exchange of the tangible value of his house. Put simply, in exchange for willing his real house to the owners of the virtual world, he is given an equivalent property in the virtual world.
The nature of this kind of transaction gives virtual possessions tangible value, because they are correlated to equivalents in the real world.
Now that we have established true worth in virtual objects, it then becomes possible for a virtual currency to operate within the virtual world.
To summarise: When creating virtual worlds, we can’t bypass the kinds of safeguards and mechanisms that it’s taken society thousands of years to establish. We have to recreate them within the new world and manage the interactions between the two based on measurable worth.
I’ll leave you with a question to ponder in light of my firewall proposal.
Who should own the virtual worlds, given that they alone have the power to acquire physical assets in exchange for virtual ones?
